Archived

This topic is now archived and is closed to further replies.

Charlotte_native

Real Estate Investors

40 posts in this topic

In thinking back to the 90's and the heyday of IPO's, tech stocks, day traders and the big tech crash, are todays multitudes of new real estate investors and "flippers" our decades fast trackers? Will the trend end in the same way? It just seems that half the people I meet or talk with are getting into, are already into, or have bought a book on real estate investing. For the most part, none are looking at anything long term like building a rental portfolio (like investors of the past mostly were), everyone wants the fast quick buck.

Share this post


Link to post
Share on other sites


In thinking back to the 90's and the heyday of IPO's, tech stocks, day traders and the big tech crash, are todays multitudes of new real estate investors and "flippers" our decades fast trackers? Will the trend end in the same way?

Yes, I believe so, in bubble markets. There is hard evidence that DC, Boston, Vegas, San Diego and Florida have begun to deflate. But I certainly don't think Charlotte would be included in the "bubble" group.

Share this post


Link to post
Share on other sites

are todays multitudes of new real estate investors and "flippers" our decades fast trackers? Will the trend end in the same way?
Yes, and yes. There's no such thing as a quick buck that lasted so long. Once 50% of the population has gotten into "flipping" it's already too late. When all is said and done, the only people who will have gotten rich here are the ones who started buying three and four years ago - and are just getting ready to get out of the market.

And - correct me if I'm wrong here - most of these people aren't paying cash to buy these homes, or even paying cash for whatever improvements they make (if any.) They're buying the homes with borrowed money, and then fixing them up with borrowed money, and when the market collapses they'll be stuck with four $200,000 homes and four $400,000 mortgages.

Share this post


Link to post
Share on other sites

Yes, and yes. There's no such thing as a quick buck that lasted so long. Once 50% of the population has gotten into "flipping" it's already too late. When all is said and done, the only people who will have gotten rich here are the ones who started buying three and four years ago - and are just getting ready to get out of the market.

I was thinking the exact same thing. I used to be apart of the Charlotte Real Estate Association and flipping was gaining popularity, this was 5 years ago. Then the housing market kinda froze and a lot of people lost their tail in the wait for sale. Now I feel its still a wishy washy market and it's not hot enough to make fast bucks, but the temptation still gets people. For there to be winners there must be losers.

Flipping works well if you have enough cash to wait through the inevitable swing. If you put all your eggs in just a few places though you're bound to lose out due to inability to work through the tough times. Then again that can be said about just anything.

Quick bucks are tough to make, nearly impossible to keep for any timely duration.

-a

Share this post


Link to post
Share on other sites

And - correct me if I'm wrong here - most of these people aren't paying cash to buy these homes, or even paying cash for whatever improvements they make (if any.) They're buying the homes with borrowed money, and then fixing them up with borrowed money, and when the market collapses they'll be stuck with four $200,000 homes and four $400,000 mortgages.

I don't think there is any need for being corrected, everyone I have encountered is buying with borrowed money and financing to the hilt (the books and infomercials on this encourage that to leverage for more purchases). The problem I see with just that, and I have seen it happen to someone I worked with, if you get in trouble with one property, and you have sucked the equity out of all the others, you have nothing to sell or get rid of to get out of the mess. This guy had four properties foreclosed in a 5 month period then had to sell the property he bought to use for his main line of work (warehouse facility for clothing wholesale). It then spilled over into that and he finally, after 4 years, has rebuilt that business to where it was before the house of cards blew over.

I guess the parallel I am seeing with the Day Traders is tons of people getting into something they really don't understand and have been led into believing is a way to make easy quick cash. There is nothing about real estate investing that is simple or guaranteed, but everyone seems to think so and the books and videos on this imply that it is -- I suspect it isn't easy to sell a book that tells how hard it is to make money.

Share this post


Link to post
Share on other sites

I honestly think this fad is already played out, and the true flippers in Vegas and Miami etc are feeling the heat of a buyer's market. There are people that own dozens of units in these towns ... seriously ... check Craigslist yourself. They might have picked up $200K or so with their first flip, so they went out and bought several more trying to make a killing...

Although most uptown's developers say they have placed limits on the number of investor-owned units, time will tell how many people were willing to sign "owner occupant" closing papers, with the intention of flipping anyway.

Share this post


Link to post
Share on other sites

I honestly think this fad is already played out, and the true flippers in Vegas and Miami etc are feeling the heat of a buyer's market. There are people that own dozens of units in these towns ... seriously ... check Craigslist yourself. They might have picked up $200K or so with their first flip, so they went out and bought several more trying to make a killing...

Although most uptown's developers say they have placed limits on the number of investor-owned units, time will tell how many people were willing to sign "owner occupant" closing papers, with the intention of flipping anyway.

Builders are also building their pricing structure better these days. Pricing for many new projects, per foot, is higher than current price per foot for both new construction and resales. They do that with anticipation that the market will continue as it has and have built in anticipated appreciation. That implies that when you buy it will be at the current market price so there won't be any room to make money with a flip. I definitely don't see pricing for this type of project allowing any room with the mortage payment and HOA dues to make these cash-flow rentals. A few townhomes in Wesley Heights have already had this problem -- flippers bought them expecting to put them right back on the market, after sitting few a couple of months, the prices they actually got were not very much higher (if at all) that what they paid after adding back in commissions.

The original flip question didn't just mean condos, though. I've seen a lot of newbie investors buying up everything they can get their hands on in Villa Heights, Belmont, Smallwood, etc. Often they buy them to hold while the neighborhood "improves" in hopes of flipping in 6 months to a year with big payoffs. Problem is, if everyone buys and holds, there is no "movement" and no homes are sold improved or even unimproved, therefore the market becomes stagnant.

I guess I was more wondering if I was the only one seeing uninformed people making purchases without really knowing the potential downside. When Day Traders were the thing I remember everyone trying to jump on the wagon. CPCC even had a class on Day Trading as i recall. Anyone know any full time Day Traders anymore?

Share this post


Link to post
Share on other sites

NBC nightly news did their in depth study on the bubble bursting in the housing market. Aside from rising interest rates, they also mentioned that there is now an over supply of housing. (no doubt due to developers looking to cash in on the bubble) In the Charlotte area there are approved plans for new developments that if all are built will amount to 106,000 new residences. If you accept the fact there are 2.3 people on average/residence, then this will increase the housing supply by 243,800 people. Our metro is adding about 25K/year. I would say that trouble is coming for the local real estate market in a big way and people that have bought at the top of the curve are in for a rocky ride in the next few years.

Share this post


Link to post
Share on other sites


The 2.3/residence isn't true anymore, but your point is still well taken. Even if it is something like 1.5, that is still 150k. That Observer article, I believe, was on approved subdivisions. How do subdivisions work to avoid oversupply? Do they just build as they sell, or they build the whole subdivision and hope they all sell out?

Share this post


Link to post
Share on other sites

The up-front infrastructure cost of a subdivision makes it necessary for the most part, to build out and sell. It's more feasible in a rural unzoned county, using septic and gravel roads, for a small builder to just finish the lots out piecemeal.

Share this post


Link to post
Share on other sites

Actually, at least in Mecklenburg, there is no unzoned land. All of the municipalities are free to impose zoning in the rural parts of the county that are in their EJT's (Sphere of Influence), and all 7 municipalities do so. I am not as sure about the surrounding counties but generally zoning is performed by the county government in those cases.

New developments sellout because they offer financing and other perks that don't exist with existing housing. If they build 106K more housing, then it will be the pricing of existing housing that will come down.

The 2.3/residence isn't true anymore, but your point is still well taken.

According to the US Census, it is 2.53 in the City of Charlotte and 2.39 in Mecklenburg county. This is actually worse than I predicted above.

Share this post


Link to post
Share on other sites

Wow, I stand corrected (although I'll bet uptown brings down the average).

As for the oversupply, that is terrible news. I always had the impression that subdivisions simply built out of 3-5 years whenever they actually sold. In that scenario, having too many approvals would make it difficult to build it out. If they do end up just building all the houses in the approved subdivision, then it does seem like we have a serious problem.

Share this post


Link to post
Share on other sites

Wow, I stand corrected (although I'll bet uptown brings down the average).

As for the oversupply, that is terrible news. I always had the impression that subdivisions simply built out of 3-5 years whenever they actually sold. In that scenario, having too many approvals would make it difficult to build it out. If they do end up just building all the houses in the approved subdivision, then it does seem like we have a serious problem.

Subdivisions do sell out over a period of years. Those numbers came from planned units -- when a developer submits plans for a subdivision they submit the plans, the plat for the roads and lot layout -- overall they submit the plans for all phases (perhaps leaving out some areas that they either have not closed on or have not completed plans for). That generally means those lots would be in the overall count, but might not be built out for years. Highland Creek is dozens of phases and has been around for at least 12 years and they are no where near completion of all their planned homes. That 106,000 number I'm sure is accurate, but it doesn't tell what time frame they will be building those -- it could span up to 5 or 10 years for some. There are even platted subdivisions that never get built, check on polaris, add building footprints and go up and around Huntersville in the west part over 77 and you can find a handful of them.

Developers also DO build as they are sold, Dubone, in the phased process they ususally won't start new phases if they have a large inventory of unsold spec homes. They don't want to become their own competition. They also have a limited number of homes that can be built based on the size of their construction crews. They won't necessarily stop building if homes are selling just a bit slow, but they certainly would put new starts on a slow pace if sales were doing the same.

Share this post


Link to post
Share on other sites

There are even platted subdivisions that never get built, check on polaris, add building footprints and go up and around Huntersville in the west part over 77 and you can find a handful of them.

Going back to an earlier period of swift growth in Charlotte - look at a street map of Charlotte from any year late-1950s through about 1972 (the 1st oil crisis) - you will note dozens of 'paper subdivisions' - developments platted that appeared on governmental and (especially) commercial maps that ended up never getting built - there were tons of them around the city.

Share this post


Link to post
Share on other sites

Yet from 73 to 79, the entire side of the city around Eastland Mall, and including Eastland got built out. 1000s of homes in new subdivisions. There was nothing there in 72. People were knocking each other down to buy property out there as it was supposed to be the "next big thing". Likewise there was intense growth around Southpark in new subdivisions. None of these places would have appeared on a 1972 map. The reason the pre 1972 places did not get built was because new development further out was more attractive to it.

I don't think 106K new homes will be built now as we don't have the population growth to support it. But what it does mean is that development all over the city is going to be feeling price pressures because new developers will price development to get their places built.

On the earlier comment about W. Huntersville. This section of the county is affected by Lake Norman state watershed rules which limits how much ground can be covered, and Huntersville has also slapped down rural zoning over this area. This means that almost no new subdivisions get approved there which was the point. Huntersville intends for this area to remain rural in character and so far their rather stringent zoning is making that the case. Ironically these restrictions are making everyone's land including current homeowners more valuable. I wish Charlotte would do the same thing.

Share this post


Link to post
Share on other sites


Yet from 73 to 79, the entire side of the city around Eastland Mall, and including Eastland got built out. 1000s of homes in new subdivisions. There was nothing there in 72. People were knocking each other down to buy property out there as it was supposed to be the "next big thing". Likewise there was intense growth around Southpark in new subdivisions. None of these places would have appeared on a 1972 map. The reason the pre 1972 places did not get built was because new development further out was more attractive to it.

Yes - correct actually; some of this slipped my mind. Of those unbuilt developments I was thinking of, the ones in East and Southeast Charlotte were built during the 70s, a last few in the 80s, generally after radical reworking of initial plans. For the most part the ones elsewhere (several things in NW Charlotte and in the Nations Ford area) did not.

Share this post


Link to post
Share on other sites

I think most flippers that are in danger are the ones who purchase a property that is too expensive in the first place. They mistakenly assume a linear increase in values when the shape of the curve usually flattens out after a sharp initial pop. Some people in Uptown buying north of $300 per square foot (can you say Fifth and Poplar?) and are unable to rent the places out at a backstop, will be in trouble. Others in Wilmore or other neighborhoods that are already being priced as if completely regentrified like Dilworth, will have some problems. I recall someone having to sell three houses on that street at the end of Belvedere in Plaza-Midwood for a fire sale price after going bankrupt. Great houses in a promising neighborhood, but things weren't really moving fast enough to justify $150 per square foot BEFORE any work was put into remodeling the place. Flippers really have to get there before a location or idea (e.g. Uptown condos) becomes popular and they have to pay the right price. Not some inflated price driven up by the sense that a neighborhood is turning around. The power has then shifted from the buyers to the sellers and they're going to take all your gains for themselves.

Share this post


Link to post
Share on other sites

And - correct me if I'm wrong here - most of these people aren't paying cash to buy these homes, or even paying cash for whatever improvements they make (if any.) They're buying the homes with borrowed money, and then fixing them up with borrowed money, and when the market collapses they'll be stuck with four $200,000 homes and four $400,000 mortgages.

^^ Johnny what has our lucky winner won today. ^^

You are a very smart one orluz. That is one of the things that people can't seem to realize. It is quite scary when you look at all the data coming out and where we are heading. I know the Carolinas will be more insulated from the coming corrections, but we will still be impacted.

What is really concerning is the the Consumer Debt load is at an ALL TIME high. If rates start really climbing, then you will have the unfortunate problem of a serious recession. The current savings rate in the US is for the first time ever: NEGATIVE. The last time this happended was in Japan in 1989. Then the Nekkei dropped from roughly 35,000+ to a low of around 7,000.

I believe that is where we are heading. I am actually being conservative by suggesting a recession, but for the sake of not getting eggs and tomatoes thrown at me I will leave it alone.

But for some interesting reading regarding the coming financial crisis of our country, check this out. This is not for the faint of heart and really needs to be read with a a base knowledge of the monetary system and the financial markets.

The following are a shortlist of some of the major problems facing a debt saturated world, in particular, the world's largest economy, the USA:

The US Government deficit now exceeds US$8 trillion. The ceiling for the deficit has recently been raised again by Congress;

The US needs to receive funding at the rate of US$65 bn./month or more;

The trade deficit is now running at an "eye popping" US$730 bn. per annum or 6.7% of GDP;

The derivatives and hedge fund markets top US$240 trillion;

The US has reached a level of debt saturation hitherto thought unimaginable and unsustainable, comprising, at its heart, mountainous mortgages and pyramiding credit card debt. More and more Americans have burdened themselves with maximum mortgages taken out with the perception of a real estate market set on an ever upwards trajectory. Most of these mortgages are at the limit that the mortgagee can support, and this sustained by ever more complex and financially dubious mortgage products increasingly designed to underwrite ARM (Adjustable Rate Mortgages) mortgages. This is little other than a horrifying scenario based on a "colossal leap of faith" in the persistence of low interest rates and economic naivety by the population at large;

The Feds policy of total accommodation, with interest rates falling to 1% in 2001 to 2002, to avert the inevitable major bond and stock market crash and all it implied for the world economy, was the signal for the surge in commodity prices many of which have more than doubled in price. Amongst the most prominent is the rise in the oil price from US$22 to US$65, but others, to name but a few, include: platinum, gold, silver, nickel, copper, lead, zinc, soy, sugar, coffee and cocoa. Most of these commodities are currently trading at increases of from 120% to 300% above 2002 prices. However, have all been reliably told that headline inflation rates are below 2.5%. Perhaps one needs to look at the salary and benefit increases of executives in the World's leading companies to see what they have been awarding themselves to determine what they know to be the real inflation rate. This, you will find, is running at between 12% to 15% per annum, and a lot more if other perks such as generous stock options and severance packages are factored into the equation. So much for the CPI;

Finally, but by no means least, we have "the forever war" on terrorism. Congress has approved the largest ever increase of some 40% in the Defense Budget to a mind boggling US$450 billion. This means that the US spends more than all the other countries in the world combined on its military. One may wonder what such expenditure might achieve if even a fraction of it were directed to such things as: US infrastructure including roads, railways, power stations, hospitals, and construction of better schools; or, medical research; development of new sources of energy; reducing the effects of pollution in the US; or if some was directed to alleviate world poverty and assist developing countries? The current Iraq war is little other than a debacle that has brought untold misery. Even worse, the ugly inheritance of Winston Churchill's policies has come back to haunt the citizens of Iraq with a fracticidal civil war now underway which is engulfing Sunni Muslims, Shi'ite Muslims and Kurds. In a nightmarish scenario, this war could well drag in Kuwait, Iran, Turkey, Jordan and Saudi Arabia. Neither the US nor the UK has a clear exit strategy for Iraq. In fact, they are linked together in a mess that neither can extricate themselves from. The full consequences of this immense policy failure will become apparent over the coming months and years. Long will the Allies live to rue the day the got involved in Iraq. History will not judge Messrs Bush and Blair kindly. Eventually, the truth will out.

Source:

http://www.gold-eagle.com/editorials_05/nmaund060106.html

Regarding the demise of the Housing Market Please read this:(please note that it is from the Bay area, but it carries truths for all of us)

http://patrick.net/housing/crash.html

All I have to say is two things:

Love those closest to you and get out of debt.

(ps---I am not a negative person, really. I am just a realist and really see no possible way of putting off our day of reckoning.)

A2

Share this post


Link to post
Share on other sites

Yes. Today's younger generation has never experienced a bad recession/depression and a stagnant or falling stock market. They don't think it can happen. One only has to look at how quick we forget the past with the chest beating that went on with Iraq from the President saying "Bring It On" to the passionate cries of "Let them eat Freedom Fries" and we forgot the lessons of Vietnam and went blazing into Iraq. Now we are re-learning the hard way that war isn't to be taken on such a cavalier attitude. Iraq is choking us on those fries and we poured all our french wine down the sewer so there isn't anything to wash it down with.

In the same fashion, we have lost all good sense on what it means to save for a rainy day.

The complete lack of savings, borrowing for consumption of material things, and our total self absorbtion with ourselves is a sign that nobody realizes this party will soon come to an end as well. And whats worse is we have become a nation that doesn't make anything anymore, all of our technical jobs are going overseas so there is no incentive to become educated in many fields, we have a disdain for science, and we lay around in our air conditioned homes with our electronic gizmos while cheap illegal labor does all the work. They called the 70's the "Me" decade, but it was nothing like this.

If you have some money to invest you better send it to Europe and Asia. It's gonna be toast here in the USA.

Share this post


Link to post
Share on other sites

And whats worse is we have become a nation that doesn't make anything anymore, all of our technical jobs are going overseas so there is no incentive to become educated in many fields, we have a disdain for science, and we lay around in our air conditioned homes with our electronic gizmos while cheap illegal labor does all the work.

^^^This is so true metro. What makes me real concerned is the lack of knowledge in today's society about our non-existant manufactoring base. They just go about their business sipping lattes charging up another pair of shoes on their near maxed out Visa Platinum card.

This scares the hell out of me. When a country's main exports are debt and jobs, you can rest assured that its days of Economic dominance are numbered.

We can not just continue to print money to get ourselves out of the pickle we are in. The countries that have taken the manufactoring base away (India and China), not only sell to us their goods, but they own the majority of all of our debt (ie Treasuries). :(

Think about it guys we pay them TWICE! Once by us purchasing THEIR goods and then secondly with us paying back INTEREST on OUR monumental mountain of Debt!

A2

Share this post


Link to post
Share on other sites

Just an FYI. if crude closes up past 75$ per barrel then the next stop could easily be 100 bucks on a technical basis.

Get ready ! Iran is not playing games and I sincerely believe that this might be the straw that breaks the cammel's (US Economy) back:

http://abcnews.go.com/International/wireStory?id=2038822

There is still spin in the article above, so understand the bias favors the US and a favorable outcome of the Iranian crisis, but make NO mistake about it:IRAN HATES US. VENEZUELA HATES US, and too be frank CHINA and Russia could care less. Oil is going higher, rates are going higher, our Debt load is going higher, and unfortunately the Stock Markets, Real Estate, the Dollar, and the overall US Economy looks to be heading South.

Ok now back to topic. Sorry I drifted, but it does have HUGE implications on the Housing markets.

A2

Share this post


Link to post
Share on other sites

Nice to see someone else that follows Piggington. I bet you have been on TheOilDrum too.

Iran sees itself as it's own China.... a country with history as a regional power long before "the middle east" meant anything. They fought off the Greeks and Romans in the most ancient of times, and they aren't intimidated by Shrub. They will push this to the very brink and extract any last chip they can from the west.

Share this post


Link to post
Share on other sites

DOW PLUNGES ANOTHER 200 POINTS!

Second Drop of that magnitude in less than 2 weeks. Rates are getting ready to soar and US dollar is getting the almighty Smack Down. Yet another sign of things to come. This is just the start of the Fireworks fellow UP comrads

So what does the President do???

Answer:

Use Gay Marriage, Flag Burning, and Imigration issues as a means to destract the masses of what is really the crux of the matter.

Huge Trade Deficits, Huge Debt, and a meltdown of the US dollar.

Real Estate "flipping" is going to be least of our concerns if this administration does not get their act together.

A2

Share this post


Link to post
Share on other sites

I am firmly convinced if the Republicans hold the congress in November, we will be rolling into Iran with guns blazing. They don't want the Persians to have The Bomb. All of you 20 somethings will have to worry about the draft as they don't have enough soldiers to invade another country. 2 countries invaded under Bush has used up military.

Imagine what that will do to oil prices. 23% of the world's oil flows through straits controlled by Iran.

This time it won't be France that is the whipping boy to detract from the fact that we are going to war. It's us poor Gays that have to endure our President pushing for amendments to the Constitution that actively discriminate against us. For me personally it is depressing our country has come to this.

Share this post


Link to post
Share on other sites

  • Recently Browsing   0 members

    No registered users viewing this page.